Already reeling under pressure from the US government's decision to hike visa fees for L1 and H1B categories, the Indian IT sector could be affected by the UK's Migration Advisory Committee's (MAC) recommendations to the British government to introduce the immigration skills charge (ISC).
In its report submitted to the government last month, MAC suggested that an upfront charge of £1,000 per year for each Tier 2 migrant employed by companies in the UK should be collected. This would make the Tier 2 route more selective, while providing £250 million for skills funding annually, and having a significant impact on employer behaviour.
Professor Sir David Metcalf CBE, Chair of the MAC, said that skilled migrant workers make important contributions to boosting productivity and public finances, but this should be balanced against their potential impact on the welfare of existing UK residents.
"Raising the cost of employing skilled migrants via higher pay thresholds, and the introduction of an ISC should lead to a greater investment in UK employees and reduce the use of migrant labour," he said.
"This will incentivise employers to reduce their reliance on migrant workers and encourage them to invest in training UK employees. This charge should be in addition to raising salary thresholds," he added.
The UK government contemplated a similar move in 2012 but after the British-based Indian IT firms warned of relocating their offices, then UK Business Secretary Vince Cable and Chancellor of the Exchequer George Osborne assured that they will not be implemented for two years.
In May last year, British Prime Minister David Cameron hinted his government's plans to reform the country's immigration and labour market rules by improving the training of British workers and lower the number of skilled workers from elsewhere.
"As we embark on this massive skills drive, we will ask MAC to advise on significantly reducing the level of economic migration from outside the EU," the British Prime Minister said.
In line with his thinking, MAC listed several measures, one of which was the introduction of ISC. If implemented, it will adversely impact the Indian IT sector, which is the second-largest market for the IT companies after the US, accounting for about 18 percent, or between around $18 billion to $19 billion, of export revenue annually.
The National Association of Software and Services Companies (NASSCOM), a trade association of Indian IT industry body, expressed concern over the recommendations, particularly the move to introduce ISC. It estimated that the Indian IT companies may have to shell out $400 million every year.
"We are disappointed that companies leveraging Indian talent in IT domain are singled out in the report. The UK and India enjoy strong trading relationships and the commitment to increase trade was renewed when Prime Minister Narendra Modi visited the UK in 2015," NASSCOM President R Chandrashekhar said in a statement.
NASSCOM also pointed out that Indian IT companies, including TCS, Infosys and Wipro, make use of intra-company transfer (ICT) visas, which fall under UK's Tier 2 visas that pertain to skilled workers from outside the UK, and urged the British government to reconsider the panel's proposals.
BackTheMac, a London-based group which is against the use of intra-company transfer visas, claimed that in 2015, 217,551 people working on client contracts and another 60,506 not working on client contracts were from India. Among those working client contracts, over 202,000 were in the IT sector and another 24,000 were on non-client contracts.
Meanwhile, Hyderabad Software Exporters Association (HYSEA) said that there will be some pressure on profitability for a short time but it provides an opportunity for the companies to re-invent themselves.
"There was economic slowdown and also currency appreciation but still the industry managed to survive the crisis. Though cost structure goes up, we can still manage and keep going as it will lead to improve efficiency," HYSEA President Ramesh Loganathan said.
The IT companies, in all probability, will look at finding alternate ways to deal with the situation, such as passing on the burden to its customers, increasing offshore work by executing projects at home, and also reducing the number of employees they send to the US and Britain to work for their clients.